Largely, financial services to the informal sector are a lucrative business, where potential investors wishing to invest in Ghana can tap into. Such investors could gain fair share of the target market if the necessary measures are put into place. Currently, financial services to farmers, traders, private transport services, artisans etc have been made accessible largely through non-bank financial institutions and the rural banks. Arguably the traditional banks consider this sector as risky because of high loan non-payment and low savings mobilisation prospects. For instance, most clients in this sector have no housing address system to be traced in times of loan default. And also most of the clients in the sector do not have appropriate title to their assets to use as collateral for loans.
The above notwithstanding the informal sector is lucrative and it is vital that potential investors make inroads into the sector. A report published by B&FT revealed that in 2008 the total assets savings and loans companies in Ghana was a whooping amount of GH¢247 million. In addition the savings and loans companies in Ghana mobilised a total of GH¢130 million from the public for the same period. The industry also disbursed a total of GH¢61 million in loans to private enterprises and as much as GH¢81 million to individuals.
Again financial experts estimate that 70 percent of funds in Ghana’s savings and loans industry are raised from local sources through savings mobilisation. For instance in 2008, the total liabilities of all savings and loans companies was GH¢189 million, of which GH¢130 million came from deposits from the Ghanaian public. Comparatively deposits in the retail and small and medium-scale sector are more stable and cheaper than at the corporate banking level. Potential investors could capitalise on such windfalls in the informal banking sector in order to swell up shareholders fund.
Competitors
Currently potential investors are likely to face a competition from existing players in the market in Ghana. Examples of such competitors are Procredit, Opportunity, Garden City Savings and Loans etc. Most of these institutions have comparative advantage because they have penetrated deeply into this sector. ProCredit for instance has 24 branches in five regions in Ghana. Currently the company is estimated to have more than 88,000 deposit clients and was able to mobilise over GH¢96 million in deposits for the same period. Opportunity International Savings and Loans on the other hand, have 40 branch outlets all over Ghana. The company as at September 30 2014 has a deposit balance of GHc75 million and total deposit clients of 392,642.
Susu collectors are also big players on the market. In Accra alone, there is Greater Accra Susu Collectors Cooperative Society (GASCCS), with a membership of 461 members. It’s estimated that there are over 2000 potential Susu collectors already operating in the sector. According to a report published by GCSCA as at December, 2012 its members served a clientele base of 218,536 made up of 143,927 females and 74,609 males throughout Ghana. An amount of GH¢5,360,773.77 was marshalled for that same month and deposited in Ghanaian banks.
Solutions
Potential investors need to adopt aggressive revenue mobilisation in this sector to beat the competition. This requires a manger with a vision, drive and capability to circumvent existing obstacles in such a risky market. The manger needs to design innovative products to tap into market. Besides there is the need to focus attention on developing and diversifying the rural savings mobilisation. It is believed that the growth in rural output in the near future could result in the increased demand for microfinance and credit. This is because rural productivity could lead to increase in food production in the country and this could trigger the demand for loans for small businesses and cottage industries (B&FT).
Also risk in lending to clients in the informal sector could be controlled by adopting character-based lending to entrepreneurs with good record of success and close on-site monitoring. Cost of recurrent monitoring could be reduced through greater devolution of responsibilities for small loans by providing ample training to local branch officers.
Risk could also be reduced by liaising with local NGOs to take advantage of the data they hold on clients particularly in the rural areas. This would give sufficient information of the risk level of the clients they would be dealing with. This would also help in reducing costs in terms of reviewing and scrutinizing of prospective clients. (Aryeetey, Ernest etal)
Finally small enterprise lending could be extended by developing option to property as guarantees for loans. In order to reduce risk and increase client base they should consider personal guarantors, sales contracts, and liens on equipment financed as alternatives.
Franks Kwaku Kuma – Lecturer,
Business School Koforidua Polytechnic
kwakuhull@yahoo.com